THURSDAY’S rise in interest rates should help balance conlicting market forces, amid doubts of the strength of the economic recovery, according to business leaders in Surrey.

The Bank of England’s decision to raise rates by 0.25% to 4.25% was in part to keep to its own inflation targets and will help to cool the housing boom, although the Bank’s Monetary Policy Committee has said it does not set rates to affect the housing market.

Chris Bean, president of Surrey Chambers of Commerce, said: “The financial markets expected this rise and we are not surprised. “We understand the difficulties facing the MPC in the face of house price inflation and record personal debt.

“Having decided to raise rates today, we urge the MPC to maintain a cautious stance in the coming months, taking fully into account the difficult problems facing the manufacturing sector and the strength of Sterling.

“We appreciate that the MPC may have to raise interest rates further later in the year if the recovery accelerates and inflationary pressures worsen. But there should be no further tightening until the strength of the recovery and underlying inflationary pressures are clearer.”

Andy Lee, relationship director for Lloyds TSB Surrey, said: “The rise was almost inevitable after last month’s decision to keep rates on hold. An interest rate of 4% doesn’t tally with an economy growing at over 3% a year and house prices shooting up at double digit annual rates, despite the fall in annual consumer price inflation to 1.1% in March.

“UK inflation is low at the moment and the MPC clearly want to preserve this by keeping a lid on overall growth as upward pressure on prices will build as the economy uses up its spare capacity.

“Fast growth in house prices is a sign that demand is strong, so making excessive inflation more likely if action is not taken now.”

Philip Kingscott senior consultant at Baker Tilly Financial Services said: “Many commentators are predicting further rate increases will be required to slow the pace of growth in the UK economy.

“This is obviously bad news for mortgage holders who should ensure they have the most competitive and suitable mortgage product.”